Below are 10 companies, 5 have high and 5 have low betas.
In the space provided below each of the firm descriptions,
- Identify which are the “high” and which are the “low” beta firms
- AND for each of the 10 firms explain why in 1-2 sentences
EOG Resources (EOG)
EOG is a crude oil and natural gas exploration and production company with reserves in the United States, Canada, Trinidad, and China. Crude oil is the largest segment which accounts for 79% of revenue.
The company has been a primary victim of the low commodity price environment in the past several years. Fortunately, EOG has aggressively worked to lower its costs and break-even points to maintain profitability.
Going forward, the recent spike in oil and gas prices has boosted EOG’s financial results to start 2020. In the first quarter, adjusted EPS of $1.62 was the second–highest EPS in its history.
Average crude oil prices increased to $58.02 per barrel in the 1Q from $41.81 per barrel in the 4Q. EOG also realized higher prices for a portion of natural gas sold on a spot basis during intense demand related to winter storms and natural gas sold at prices tied to the LNG export market.Total per–unit costs in 1Q were slightly above the guidance range mid–point due to higher fuel and power prices during the winter storm.
FirstEnergy (FE)
FirstEnergy is an electric utility. It operates Regulated Distribution and Regulated Transmission businesses. It owns and manages hydroelectric, coal, nuclear, natural gas, and renewable energy power generating facilities.
Its 10 electric distribution companies form one of the nation’s largest investor–owned electric systems, serving customers in Ohio, Pennsylvania, New Jersey, West Virginia, Maryland, and New York. The company serves approximately 6 million customers.
On April 22nd, 2021, FirstEnergy announced its Q1 results for the period ending March 31st, 2021. For the quarter, revenues were $2.73 billion, a marginal increase of 0.63% year-over-year, while EPS came in at $0.69, 4.5% higher compared to Q1–2020. Revenues benefited from higher residential usage, including a positive impact from weather compared to the same period in 2020, investment–related gains, and the implementation of a higher base distribution rate in New Jersey.
FirstEnergy reaffirmed its full–year operating earnings guidance of $2.40 to $2.60 per share. Additionally, management ensured investors that it remains on track to achieve annualized operating earnings growth from 5% to 7% through 2023.
General Mills (GIS)
General Mills is a packaged food giant, with more than 100 brands and operations in more than 100 countries. It produces a number of cereal brands such as Cheerios. It also has brands outside cereal including Haagen Dasz, Yoplait, Betty Crocker, Pillsbury, Blue Buffalo, and many more.
General Mills has worked aggressively to reduce debt since the $8 billion acquisition of Blue Buffalo. This deleveraging has allowed the company to return to increasing its dividend.
Source: Investor Presentation
In late June, General Mills reported (6/30/21) financial results for the fourth quarter of fiscal 2021. Net sales fell –10% and organic sales fell –6%, reflecting the comparison against the surge in at–home food demand at the outset of the pandemic last year. Adjusted earnings–per–share decreased –19%, from $1.12 to $0.91.
For the full fiscal 2021, General Mills posted record earnings–per–share thanks to the surge in at–home food demand amid the pandemic. On the other hand, the company will face tough comparisons this year, as the pandemic subsides.
The company expects a –1% to –3% decrease in organic sales in fiscal 2022 and adjusted earnings–per–share between flat and –2% for the upcoming year.
Shares currently yield 3.5%.
Intuit Inc. (INTU)
Intuit is a cloud–based accounting and tax preparation software giant. Its products provide financial management, compliance, and services for consumers, small businesses, self–employed workers, and accounting professionals worldwide. Its most popular platforms include QuickBooks, TurboTax, Mint, and TSheets. Cumulatively, they serve more than 52 million customers. The company generates nearly $9 billion in annual revenue.
Intuit has a long history of generating high growth.
On May 25th, 2021, Intuit reported its Q3–2021 results for the period ended April 30th, 2021. The company delivered another strong quarter, growing its “Small business and Self–employed” revenues by 20% and its online ecosystem revenues by 22%. International revenues also performed greatly, expanding by 38% on a constant currency basis. Total sales grew by 39% to $4.17 billion, while EPS rose 35% from the comparable period last year.
Microchip Technologies (MCHP)
Microchip Technology develops, manufactures, and sells smart, connected and secure embedded control solutions used for a wide variety of applications. These include disruptive growth trends such as 5G, artificial intelligence, Internet of Things (IoT), and autonomous driving, amongst others.
These products are utilized in a variety of end markets such as automotive, aerospace and defense, and communications. The company’s strategic focus is that these solutions are cost–effective, offer high performance with a wide voltage range operation, at extremely low power usage. Microchip Technology generates around $6 billion in annual revenue.
In the most recent quarter, net sales increased 11% to a record $1.46 billion. Higher revenues were powered by record bookings and backlog for products to be shipped over multiple quarters. Demand continues to outpace supply in the industry, with the company’s only obstacle towards higher revenues being its own capacity to produce more.
NVIDIA Corporation (NVDA)
NVIDIA Corporation is a specialized semiconductor company that designs and manufactures graphics processors, chipsets and related software products. Its products include processors that are specialized for gaming, design, artificial intelligence, data science and big data research, as well as chips designed for autonomous vehicles and robots.
In the most recent quarter, the company generated 84% revenue growth. This was a surprise to the upside, as the analyst community had forecast a smaller growth rate. Gaming sales increased by 106% and hit a new record level, while Data Center growth was very strong at 79%.
For the first quarter of 2021 NVIDIA forecasts revenues of roughly $6.3 billion, which bodes well for the current year overall.
Quest Diagnostics (DGX)
Quest Diagnostics operates in the healthcare sector. Quest is a major diagnostics leader that serves one-third of American adults and half the physicians and hospitals in the United States each year. The company generates over $9 billion in annual revenue.
The company recently reported its fiscal-second quarter results. Second quarter revenues of $2.55 billion rose 40% from 2020. Adjusted earnings-per-share more than doubled from the same quarter last year.
For 2021, the company expects full-year revenue between $9.54 billion to $9.79 billion, which would represent a 1.1% to 3.7% increase for the full year. Adjusted earnings-per-share are expected in a range of $10.65 to $11.35 for 2021.
Quest Diagnostics has a significant competitive advantage, which is its leadership position in a large (and growing) market. Quest estimated the 2019 lab market to be worth $82 billion, and the company expects the market to continue growing at a 2% to 3% annual rate.
J.M. Smucker (SJM)
J.M. Smucker company has grown into an international powerhouse of packaged food and beverage products including iconic names like Smucker’s, Jif, Folgers, along with pet food brands like Milk Bone, Meow Mix, Kibbles ‘n Bits and 9Lives. The company generated $8 billion in sales last year. Smucker’s focuses on pet food, coffee and snacking.
Source: Investor Presentation
On June 3rd, Smucker reported fiscal fourth-quarter and full fiscal year financial results. For the fourth quarter, sales declined 8% to $1.92 billion, as the company faced tough comparable numbers related to consumer stockpiling during the coronavirus pandemic last year. Adjusted operating income equaled $312 million, while earnings-per-share fell 32% year-over-year.
For the fiscal year, revenue of $8 billion grew 2.6% from fiscal 2020. Earnings-per-share of $7.79 increased 14% year-over-year. For the upcoming fiscal year, Smucker expects a 2% to 3% sales decline, with adjusted EPS in a range of $8.70 to $9.10.
SJM is a blue chip stock with a 3.1% dividend yield.
ViacomCBS (VIAC)
ViacomCBS Inc. is an American multinational media conglomerate that was formed via the re–merger of CBS Corporation and Viacom on December 4, 2019, the two created from the split of the original Viacom in 2005. The Company’s content brands include CBS, Showtime Networks, Paramount Pictures, Nickelodeon, MTV, Comedy Central, BET, and more.
The company has six different revenue segments, where Advertising, Affiliate, and Content Licensing are the most significant revenue source for the company. ViacomCBS generated more than $25 billion in revenues in fiscal 2020.
2021 is off to a good start for the company, as it is generating strong growth from its streaming properties.
Source: Investor Presentation
With Viacom and CBS’s merger now completed, the company is one of the most significant content producers and providers globally. This allows ViacomCBS to be in a solid position as content demand continues to grow. We estimate a five–year expected growth rate of 3% as management continues to integrate both companies.
Xilinx, Inc. (XLNX)
Xilinx is a technology company that develops highly flexible and adaptive computing platforms. It is the inventor of the FPGA and Adaptive SoCs or ACAP. The company proved resilient last year during the coronavirus pandemic as it continued to generate growth.
In fiscal 2021, Xilinx grew its fourth-quarter revenue by 13%, while revenue was flat for the year at $3.15 billion. Data center revenue increased 20% for the full fiscal year. Diluted earnings-per-share increased 5% for the full fiscal year.
WACC Valuation Part 3
NARRATIVE
USING ONE OF THE 10 FIRMS DESCRIBED IN PART 2, DEVELOP A 2-3 PARAGRAPH NARRATIVE FOR YOUR SELECTED FIRM
AS DISCUSSED LAST WEEK, A GOOD SOURCE OF INFORMATION TO FRAME A NARRATIVE IS FOUND IN MANAGEMENT’S DISCUSSION AND ANALYSIS (ITEM 7) IN THE FIRM’S LATST ANNUAL REPORT ON FORM 10K, AND AS UPDATED IN RECENT QUARTERLY FILINGS (FORM 10-Q)
ALSO LOOK AT PRESENTATIONS MADE BY THE COMPANY TO INVESTORS AND ANAYSTS AND LOOK FOR RECENT INVESTORS DAY MATERIALS WHERE THE COMPANY HOLDS A SPECIAL SESSIOIN FOR INVESTORS.
KEEP IN MIND, THESE ARE PRESENTATION FROM MANAGEMENT WHO HAS A CLEAR AGENDA – SUPPORT THEIR COMPANY’S STOCK PRICE!
AS AN OUTSIDE ANALYST, YOU DON’T HAVE TO ACCEPT MANAGEMENT’S VIEWS. YOU MIGHT DISAGREE WITH THE PROJECTED GROWTH OR MARGINS OR THE COMPANY’S ASSESSMENT OF ITS COMPETITVE ADVANTAGES OR THE PROSPECTS OF THE FIRM’S INDUSTRY AND ECOMONIC ENVIRONMENT.
THIS MATERIAL IS A STARTING POINT FOR YOUR VIEWS ON APPROPRIATE VALUATION ASSUMPTIONS.
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